Understanding Credit Building Credit Cards

For consumers with poor, limited, or no credit history, a credit builder credit card can be an excellent choice to improve their credit scores while gaining short-term financial reprieve. There are two main types of cards: secured and unsecured. Both typically have limited fees and often come with credit monitoring/tracking tools and tips/guidance.

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Unsecured cards are a good option for consumers who are strapped for cash or cannot put down a deposit. However, fees and credit line utilization need to be considered. With secured cards, the credit line is less of a concern because the consumer is limited to the amount of their deposit, which encourages mindful spending while building or repairing credit. Many secured cards will return the consumer's deposit or increase their credit limit after a certain period of proper usage (i.e., on-time payments, no overdrafts).

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For consumers looking to repair their credit, it’s essential to understand their credit score and history (e.g., credit score, A/D ratio, any negative marks). If the consumer has been denied other financial products, it’s beneficial to understand why. This can be as simple as reviewing the decline letter or credit decision report (something a finance manager might review when buying a car, for example).

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For consumers new to credit, it is important to look for cards that promote healthy financial behaviors and provide benefits towards building credit scores (e.g., reporting to more than one bureau). Lenders that offer various financial products besides credit builder cards often provide a path for consumers to ‘graduate’ to other products upon demonstrating proper financial behaviors, especially student cards.

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Acquisition marketing of credit building credit cards

For financial institutions seeking acquisition strategies for their credit builder cards, consumer entry points are crucial. Credit cards are just one type of credit-building product. If your acquisition partners (e.g., marketplaces, affiliates) offer other credit-building products, it already indicates whether their target consumer segment aligns with yours. Having adjacent products that can extend the consumer shopping journey into credit-building products, such as loan declines, provides an elevated level of conversion because you are reaching high-intent consumers at the right point in their financial journey. High-intent consumers dramatically boost conversion rates and customer satisfaction by converting otherwise rejected applications.


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Content as the driver for conversion

Credit building products can be complex, with many considerations for consumers. Those unfamiliar with how financial instruments work may not understand credit-building products when presented as options upon loan decline, or they may not know where to start if they have limited or no credit history. This is where content plays an essential role in the consumer journey.

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Balancing editorial content throughout the consumer’s financial journey is crucial for businesses looking to convert prime target consumers at pivotal moments. When done correctly, this approach can lead to more cross-sell opportunities and increased customer lifetime value (LTV).

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Informed conversion through partnership

The partnership between product providers and embedded finance players (such as marketplaces and affiliates) is a critical factor. Consistent reporting and analysis, enhanced with data-driven insights, are essential for optimizing the marketing and product efforts of product providers. A broad and deep understanding of the profile and shopping behavior of high-intent consumers will help product providers tweak their top-of-funnel strategies and increase conversion rates. Additionally, understanding how and where their products are placed, which products they are placed with, and how their products perform against competitors can provide valuable insights to refine their offerings, such as fees, terms, and benefits.